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Succinct Summation of the Week’s Events – 11/24/17

Positives

The final November consumer confidence index from UoM was 98.5, a bit better than the initial print of 97.8 and the estimate of 98. It’s down a touch from the 100.7 seen in October but it still matches the 2nd best read in this recovery. From October, Current Conditions fell 3 pts while Expectations were lower by 1.6 pts. Inflation expectations for one year out was 2.5% vs 2.4% in October and vs 2.6% in the preliminary November report. The disappointment within the survey was the 5 pt m/o/m drop in those expecting Higher Income to 34 and is below the 1st November print of 36. Spending intentions were mixed. Those that plan on buying a car fell 4 pts while those planning on buying a house dropped 5 pts. Those that plan on selling a home was down by 6 pts (but we need the inventory). Those that plan to buy a major household item was unchanged. Lastly, those that expect higher stock prices in the coming 12 months was 62.2 vs the record high of 64.5 seen in October.

Within weekly mortgage applications, purchases were higher by 5.3% w/o/w but because the comparisons start to get more difficult, the y/o/y gain slowed to 4.1%. Don’t rely too much on figures around major holidays.

Existing home sales in October totaled 5.48mm, above the estimate of 5.40mm while September was revised slightly lower to 5.37mm from 5.39mm. These levels compare with the year to date average of 5.52mm. Inventory and pricing continues to be an issue. The number of homes for sale (see chart below) fell to the lowest since March and this sent months’ supply down to just 3.9, also the lowest since March. This helped to send prices up another 5.5% y/o/y to $247,000 though that was down a touch sequentially. After falling to just 29% in September, first time buyers made up 32% of purchases which just puts it back to trend. It totaled 33% one year ago. After the slowdown in the South after the storms, sales rebounded in October in this region but they are still below where they were in July. Sales also rose m/o/m in the other 3 key regions. The NAR said “While the housing market gained a little more momentum last month, sales are still below year ago levels because low inventory is limiting choices for prospective buyers and keeping price growth elevated.”

For the here and now this can be viewed as a positive. For the contrarian in you, it should cause concern. From Gallup: “Americans’ concerns about the US economy are, by one measure, the lowest in 18 years. Fifteen percent of Americans mention an economic issue when asked to name the most important problem facing the country. The percentage mentioning the economy has been lower only once in Gallup’s 25 year trend, 13% in 1999 during the dot com boom. It was similar, at 16%, in late 2006 and early 2007, before the recession and during the Iraq War.”

Japan’s November manufacturing PMI rose 1 pt to 53.8. New orders and export orders were strong. Most interesting though was this, “a cheaper yen and higher material prices have intensified cost pressures, as input price inflation increased to a 35 month high in November.” Higher inflation, particularly in Japan and Europe, is the most underappreciated risk right now as we head to 2018.

The November German IFO business confidence index rose .7 pts to 117.5, above the estimate of no change and is at the highest level since the survey began in 1991. A gain in the expectations component offset a slight drop in the current assessment. On the prospects for higher inflation, “A growing number of manufacturers plan to increase prices.”

French business confidence in November rose 2 pts to the best level since January 2008.

The Eurozone November manufacturing and services composite index rose 1.5 pts to 57.5 which was better than the estimate of no change. That’s the highest in 79 months with Employment at a 17 yr high. Inflation came with this too. Markit said “The faster pace of growth signaled by the surveys was accompanied by price pressures hitting the highest since mid 2011. Average input costs were pushed higher by the combination of rising global prices for key commodities, such as oil, as well as greater pricing power amid improved demand conditions. Input prices showed the largest monthly jump since May 2011 while average selling prices for goods and services rose to the greatest extent since June 2011.” Lastly, and notwithstanding the headline composite print, “Expectations about the next 12 months cooled slightly in both sectors in November, indicating one of the lowest degrees of optimism seen over the past year, but nonetheless remained elevated by historical standards.”

Retail sales came roaring back in November in the UK. The CBI retail index went from -36 in October to +26 in November. The estimate was +3. This said, “The survey of 118 respondents has however seen the strongest growth in average selling prices in over 26 years in the year to November. Similar price growth is expected next month…Retailers once again expect the business situation to deteriorate, albeit marginally, over the next quarter, but investment spending is expected to grow slightly in the year ahead for the 2nd consecutive quarter.”

After falling into contraction in October, the November UK CBI industrial orders index rebounded to +17 from -2 and that was well better than the estimate of +3. For all the worries about the UK economy (mostly with the consumer), this is the best level since 1988.

Negatives

In light of the European economic data this week, the ECB is dangerously behind the curve in removing itself from its easing addiction even with the 50% drop in QE beginning in 5 weeks. I’m at a loss as to why the Germans continue to tolerate what the ECB has done and continues to do, especially the NIRP thing.

Many in the FOMC as seen in the minutes continue to obsess about whether inflation is 1.5%, 2% or somewhere around there. Meanwhile, the CRB index is at a 9 month high with oil at a 2 ½ year high.

Initial jobless claims totaled 239k, 1k less than expected but the prior week was revised up by 3k to 252k. The 4 week average rose to 240k from 239k. Continuing claims, delayed by a week, rose by 36k after falling by 36k in the week prior.

The US manufacturing and services composite index from Markit softened to 54.6 from 55.2 in October with both components lower m/o/m. The index stands at a 4 month low and Markit said these readings “are broadly consistent with GDP growing at an annualized rate of just over 2%.” With respect to inflation, “latest data revealed that cost pressures intensified at private sector companies. This was driven by the 2nd fastest rise in manufacturing input price inflation since December 2012. A number of firms cited higher prices for chemicals and energy following supply chain disruption linked to hurricanes Harvey and Irma. Strong input cost pressures resulted in the sharpest rise in prices charged by manufacturers for just over 3 years. Prices charged also picked up at a faster pace in the service sector.”

US non defense capital goods orders ex aircraft fell by .5% m/o/m, below the estimate of up .5% albeit partially cushioned by a 4 tenths upward revision to September. The hurricane aftermath is still filtering thru, particularly with auto’s and chemicals. Notwithstanding the core spending miss vs the forecast, it is still up 9.3% y/o/y and the absolute dollar spending is just shy of the highest since January 2015 but it still is 6% below the 2014 peak.

The MBA said refi’s fell by 4.8% after jumping by 6.3% last week. They still remain down by 26% y/o/y.

In Japan exports rose by 14% y/o/y vs the estimate of 15.7% and driven by electronics (iphones?), cars/trucks and machinery. Imports were up by 18.9% y/o/y, below the estimate of 20.2% and led by energy imports and higher prices. These are still big numbers BUT on very easy comparisons. On a merchandise volume basis, exports were up by 3.8% with about all of that to the rest of Asia, particularly to China. Volume to the US was up by 1.6% and to the EU it was higher by just .6%. On the import volume side, there was zero change from the US y/o/y with the EU being the biggest exporter to Japan.

Rising Chinese interest rates in a highly leveraged economy finally caught up to the Shanghai composite which had its worst day in a year this week and closed just off its lowest level in 2 months.

German PPI in October was up by .3% m/o/m for a 2nd month and up by 2.7% y/o/y vs 3.1% in September. The figures were in line. Taking out the influence of energy prices still has PPI up by 2.7% y/o/y and consumer goods prices were up by 2.6% y/o/y with basic goods higher by 4.1% (driven by food).

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